Classmates.com 2004 Annual Report Download - page 58

Legal actions, particularly those associated with proprietary rights, could subject us to substantial liability and expense and require us
to change our business practices.
We are currently, and have been in the past, party to various legal actions in the ordinary course of our business. These actions include,
without limitation, claims that we infringe third party patents, claims and investigations by governmental agencies and private parties in
connection with consumer protection laws, claims in connection with employment practices, securities laws claims, breach of contract claims
and other business related claims. The nature of our business could subject us to additional claims for similar matters, as well as a wide variety of
other claims including, without limitation, claims for defamation, negligence, trademark infringement and copyright infringement, and privacy
matters.
Defending against lawsuits involves significant expense and diversion of management's attention and resources from other matters. We may
not prevail in existing actions or actions that may be brought in the future. The failure to successfully defend against certain types of claims,
including claims based on infringement of proprietary rights, could require us to change our business practices or obtain licenses from third
parties, which licenses may not be available on acceptable terms, if at all. Lawsuits also involve the risk of significant settlements or judgments
against us. Both the cost of defending claims, as well as the effect of settlements and judgments, could cause our results of operations to fluctuate
significantly from period to period and could materially and adversely affect our business, financial position, results of operations and cash
flows.
We may not realize the benefits associated with our intangible assets and may be required to record a significant charge to earnings if
we must reassess and impair our goodwill or identifiable intangible assets.
We are required, under accounting principles generally accepted in the United States, to review our intangible assets for impairment when
events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value amount.
Goodwill is required to be tested for impairment at least annually. We have experienced impairment losses in the past and we cannot assure you
that we will not experience impairment losses in the future. Any such loss could adversely and materially impact our financial condition and
results of operations.
Our ability to operate our business could be seriously harmed if we lose members of our senior management team or other key
employees.
Our business is largely dependent on the efforts and abilities of our senior management, particularly Mark Goldston, our chairman, chief
executive officer and president, and other key personnel. Any of our officers or employees can terminate his or her employment relationship at
any time. The loss of these key employees or our inability to attract or retain other qualified employees could seriously harm our business and
prospects. We do not carry key man life insurance on any of our employees.
Government regulation or taxation of the provision of Internet access and other services could decrease our revenues and increase our
costs.
Changes in the regulatory environment regarding the Internet could decrease our revenues and increase our costs. Currently, ISPs are
considered "information service" providers rather than "telecommunications" providers, and therefore are not directly regulated by the Federal
Communications Commission. Accordingly, regulations that apply to telephone companies and other telecommunications common carriers
currently do not apply to us. However, we could become subject to FCC and state regulation as Internet access services and telecommunications
services converge. Moreover, if we offer new services that are subject to different and additional governmental regulation,
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